Arkham Intelligence says liquidators removing the ex-crypto market maker’s DeFi positions have recovered $11.5 million in DAI and USDC, while incurring massive losses that were preventable. On January 13, liquidators lost $72,000 in wBTC when closing a loan by Alameda on decentralised exchange Aave.
Liquidators of ex-crypto hedge fund Alameda Research have reportedly incurred losses of at least $11.5 million since taking control of the company’s DeFi positions in December. Blockchain analytics firm Arkham Intelligence noted that one particular wallet under liquidators’ control has incurred massive losses that were preventable.
In a Twitter thread, Arkham explained that on December 27, 2022, a wallet account ending in ‘0x997’ had a short position of 9000 ETH, worth $10.8 million at the time, against collateral of $20 million USDC and $4 million DAI stablecoins. The wallet had a net balance of $15.2 million when liquidators first took over. Two weeks into the liquidation process, the account’s current balance stands at $1.1 million short in ETH against $1.4 million USDC, with a net balance of $300,000.
The analytics firm says this comes after recent developments caught multiple DeFi positions of Alameda left open after bankruptcy. In the latest round of liquidation. 731 ETH was sold for $1.2 million USDC. Interestingly, on December 29, almost 30 hours after liquidators began moving assets out of Alameda wallets, $7 million USDC and $4 million DAI were withdrawn from DeFi exchange Aave and sent to a separate wallet ending in ‘0x7b7’ on the Optimism L2 network. Removal of these assets from active positions on Aave led to their liquidation, resulting in $11.4 million USDC being sold off to liquidation bots on Optimism (OP), with AAVE Treasury raking in over $100,000 USDC as liquidation tax. This brought the total amount liquidated to $11.5 million.
Arkham was taken by surprise when transactions were made out of the wallet before and during the liquidation process. Amidst the two transactions, wallet 0x997 was sending five figure OP tokens to wallet 0x7b7. However the analysts are not sure why this particular transaction was prioritised over closing Alameda’s positions on the exchange. Arkham explained that if liquidators had used the function on Aave to immediately close the position by selling off collateral instead of excess collateral being pulled from the wallet, they could have preserved $15 million rather than the $11 million in USDC and DAI that has been recovered to date.
The company noted that liquidators initiated two transactions from wallet 0x979 on the Ethereum mainnet, one to send 0.03 ETH as gas to another wallet, and the other transferring $177,000 BUSD to a multisig wallet. Meanwhile, wallet 0x7b7 did not have any transactions on the mainnet. Arkham believes that wallet 0x7b7 is controlled by liquidators because the pattern of removing excess collateral from active positions fits their usual behaviour. Assets from Alameda’s other liquidator accounts on Binance Smart Chain were also transferred to this wallet.
The 9000 ETH that was on 0x979 was transferred to Binance immediately after the liquidators took control of the wallet. Arkham assumes that if the tokens were sold immediately, it would have been worth $14 million at the time. The cybersecurity firm says that currently around $300,000 worth of assets remain recoverable from Alameda’s positions on Aave. But if Ether was to rise even more than the current, these positions would be automatically liquidated.
On January 13 it was reported that liquidators lost $72,000 in Wrapped BTC (wBTC) while consolidating funds into a single wallet on Aave. Liquidators were trying to close a borrow position on the DeFi exchange when they mistakenly removed extra collateral backing the loans taken out by Alameda, which put the assets at risk of liquidation. Over a period of 9 days, the loan was liquidated twice, resulting in 4.05 wBTC being lost which cannot be recovered ever again.